The Transatlantic Digital Economy
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3 The Transatlantic Digital Economy 2323 -- THETHE TRANSATLANTICTRANSATLANTIC ECONOMYECONOMY 20182018 3 - The Transatlantic Digital Economy Global data flows now contribute more to global growth than global trade in goods Digital information, services and products, and the Table 1 charts the digital frontier. We have moved into infrastructure that supports them, have become the an age in which digitization is not just affecting our backbone of the modern global economy. They are businesses and our personal lives, it is transforming transforming how we live, work, play, travel, interact, all sectors of the economy. New enterprises are and do everything in between. Global data flows now seizing digital opportunities in goods and services, contribute more to global growth than global trade property, transportation, financial services and a in goods.1 They also underpin and enable virtually host of other areas ranging from healthcare and every other kind of cross-border flow. education to manufacturing and energy. Moreover, there are many signs that our current “Digitization Moreover, despite these incredible transformations, Age” will soon give way to a “Bio-Cognitive Age,” yet we’re still in what Scott Cook of Intuit calls “the first another transformative period in which revolutionary minutes of the first day” of the digital revolution. The advances in digitization, biology, nanotechnology, Internet of Things, 5G technologies, big data analytics, behavioral and cognitive sciences will combine to quantum computing, energy storage, precision affect not only our economic and social lives, but life agriculture, aquaponics, artificial intelligence and itself. other innovations will further accelerate digital growth around the world. Table 1 The Expanding Digital Frontier BIO-COGNITIVE AGE: conversational economy, cognitive commerce, augmented reality, remote intelligence, telerobotics, ? ? ? telemedicine, telepresence, Impact: molecular nanotechnology, from economic synthetic biology to biological and cognitive transformation DIGITIZATION AGE: smart devices and GOODS SERVICES PROPERTY sensors, IOT, big (e.g. Kijiji, (e.g. Deliveroo, (e.g. AirBnB, data, AI, 5G, platform Gumtree) TaskRabbit) Buzzmove) economy Impact: from limited business ? and personal impact to transformation of all economic sectors SMARTPHONE AGE: smartphones, APIs, social media, apps Impact: digital advertising and marketing, multiple devices per person, individuals as content creators TRANSPORTATION (e.g. Uber, autonomous ? vehicles, BlaBlaCar) INFORMATION AGE: mobile phones, laptops, 2G/3G, GPS, WiFi Impact: FINANCIAL remote work, connected anytime and SERVICES everywhere (e.g. Kickstarter, TransferWise) ? PC AGE: Desktop and personal computing, PC software, OTHERS Internet technologies healthcare, education, energy, Impact: manufacturing, e-commerce, e-mail, chat, efficiency, automated ? utilities (e.g. MOOCs, business processes Mendeley, Firstbeat) 1980s-1990 1990s-2000 2000s-2010 2010s-2020 2020s-Future Sources: GSMA Intelligence; McKinsey Global Institute; Author’s own estimates 24 - THE TRANSATLANTIC ECONOMY 2018 3 - The Transatlantic Digital Economy Digital Globalization: Still Uneven The transformative impact of each of these types of digital services is not limited to just the services “Digital globalization” evokes the image of a seamless sector but extends to manufacturing and the global marketplace in which unbridled data flows traditional bricks-and-mortar economy as well. drive goods, services and money across national Digitally-enabled services such as consulting, boundaries without friction. Reality is different. The engineering, software, design and finance are digital revolution is global in its reach but uneven in used in manufacturing industries such as transport its effects. equipment, electrical equipment and food products. In this regard, digitally-enabled services from Digital connections are “thicker” between some the United States have become critical to the continents and “thinner” between others – and they competitiveness of European manufacturing and are “thickest” between the United States and Europe. retail operations, and vice versa. In this chapter we offer five metrics through which we can see more clearly the importance of transatlantic In addition, digitally-enabled services are not just digital connections.2 exported directly, they are used in manufacturing and to produce goods and services for export. Over 1. Digital Services and Digitally-Enabled Services half of digitally-enabled services imported by the United States from the EU is used to produce U.S. To get a clearer picture of transatlantic connections products for export, and vice versa, thus generating in digital services, we can use two metrics. an additional value-added effect on trade that is not easily captured in standard metrics.8 A narrow view can be had by looking at cross-border information and communications technology (ICT) In 2016, digitally-enabled services accounted for services, or digital services as shorthand, which are 54% of all U.S. services exports, 48% of all services services used to facilitate information processing imports, and 64% of the U.S. global surplus in trade and communication.3 in services.9 A broader view can be taken by looking at digitally- In 2016 the United States registered a $159.5 billion enabled services: services that can be, but not trade surplus in digitally-enabled services with the necessarily are, delivered remotely over ICT networks. world. Its main commercial partner was Europe, These include digital services as well as “activities to which it exported over $185 billion in digitally- that can be specified, performed, delivered, enabled services and from which it imported $111 evaluated and consumed electronically.”4 Identifying billion, generating a trade surplus with Europe in this potentially ICT-enabled services does not tell us with area of at least $74 billion. U.S. exports of digitally- certainty whether the services are actually traded enabled services to Europe were more than double digitally.5 But the U.S. Commerce Department notes U.S. exports to Latin America and almost double U.S. that “these service categories are the ones in which exports to the entire Asia-Pacific region (Table 2). digital technologies present the most opportunity to transform the relationship between buyer and seller from the traditional in-person delivery mode to a digital one,”6 which means a digital transaction is likely and thus can offer a rough indication of the potential for digital trade.7 Digitally-enabled services are not just exported directly, they are used in manufacturing and to produce goods and services for export 25 - THE TRANSATLANTIC ECONOMY 2018 3 - The Transatlantic Digital Economy Table 2 U.S. Trade in Digitally-Enabled Services by Major Area, 2016 ($Billions) 200200 185 180180 160160 140140 120120 111.5 100100 96.9 8080 76.4 63.8 6060 45.5 4040 27.8 2020 13.9 9.6 5.2 5.6 1.9 00 Canada Latin America and Europe Africa Middle East Asia and Pacific Other Western Hemisphere n Exports n Imports Source: Bureau of Economic Analysis. In 2014, the last year of available data, the 28 EU $418.0 billion in digitally-enabled services, resulting Member States collectively exported $1.2 trillion and in a surplus of $151.6 billion for these services. imported $935.1 billion in digitally-enabled services, Digitally-enabled services trade represented 56% of to countries both inside and outside the EU (See all services exports to non-EU countries and 52% of Table 3 and Table 4). Excluding intra-EU trade, EU all services imports from non-EU countries.10 Member States exported $569.6 billion and imported Table 3 Destination of EU Exports of Digitally- Table 4 Origin of EU Imports of Digitally-Enabled Enabled Services, 2014 ($Billions) Services, U.S. - EU ($Billions) EU 583.9 EU 517.1 Other Europe 141.7 Other Europe 77.3 (excluding EU) (excluding EU) United States 179.9 United States 167.6 Other Other Americas 52.1 Americas 65.2 (excluding USA) (excluding USA) Asia and Asia and 138.8 73.9 Oceania Oceania Africa 30.6 Africa 14.0 Services not Services not allocated 25.2 allocated 19.5 geographically geographically International 1.3 International 0.5 Organizations Organizations 0 100100 200200 300300 400400 500500 600600 0 100100 200200 300300 400400 500500 600600 Source: U.S. Department of Commerce, Office of the Chief Source: U.S. Department of Commerce, Office of the Chief Economist using data from the Organization for Economic Economist using data from the Organization for Economic Cooperation and Development. Cooperation and Development. 26 - THE TRANSATLANTIC ECONOMY 2018 3 - The Transatlantic Digital Economy The United States accounted for 32% of the EU’s Table 5 EU Digitally-Enabled Services Trade by digitally-enabled business services exports to non-EU Sector, 2016 countries, and 47% of EU research and development services exports.11 The EU Member States with the % 100100 largest estimated value of digitally-enabled services 20% 90 exports were the United Kingdom ($159.0 billion), 33% Germany ($149.2 billion), France ($128.0 billion), 80 80 2% and the Netherlands ($115.3 billion). Some Member 70 12% States, like the UK, the Netherlands, and Sweden, 2% transmitted more than half of their digitally-enabled 3% 6060 13% services exports to destinations outside the EU. 20% Overall, however, more than half of EU Member State 50 exports stayed within the EU. Member States like Poland, Austria, and Belgium were more likely to 4040 export to other EU member states than to non-EU states. The United States purchased 15%, or $179.9 30 53% billion, making it the largest non-EU consumer of 44% 2020 EU digitally-enabled services exports, accounting for more EU exports than the rest of non-EU Europe 10 ($141.7 billion), and more than all digitally-enabled 0 0 services exports from the EU to Asia and Oceania U.S. Exports to EU EU Exports to U.S. ($138.8 billion).12 n Royalties and Licensing Fees n Telecommunications n Insurance In 2014, the EU imported $935.1 billion in digitally- n Financial enabled services, 49% of all EU services imports that n Business, Professional & Technical year.